A bank pays 5% with daily compounding on its savings accounts. Should it advertise the nominal or effective rate if it is seeking to attract new deposits?
Based on the information given we were told that the bank pay 5% on a saving account that is daily compounded which means that if they are seeking to attract new deposits from their customers they should advertise the EFFECTIVE RATE reason been that the higher an amount or saving amount is been compounded annually the higher the effective rate will be which will inturn lead it to exceed the nominal rate.
Therefore they should go ahead an advertise the EFFECTIVE RATE because the rate is more higher than nominal rate.
